Friday, March 5, 2010

Product Line Stretching

The definition of product line stretching is essentially, introducing new products into a product line. This means that company produce more products in different ranges; from higher end to lower end products. For example, Toyota is generally a company that produces durable (questionable) and low-price cars. The way Toyota is product line stretching is by creating a new higher end brand, Lexus. This model has increased Toyota's sales and allowed them access to different markets. Also, they are able to access new customers who are looking for a higher end trustworthy car. Lastly, Toyota has been able to scare-off competitors and improve their reputation.
Product line stretching also has been effective for Converse. They have been able to create many versions of their Chuck Taylor shoes. They range from $130 shoes that are sold in stores like Barney's, to $30 shoes that can be sold in stores like Target. We have gotten a chance to hear from a Chief Marketing Director who spoke about how they have managed to more than double sales because of this product line stretching. They have been able to tap into new segments and target different types of customers. Converse's higher end shoes have been able to target higher up customers that are looking for a more expensive shoe, but still like Converse's shoes. This hasn't diluted the companies image because they are able to maintain sales for their lower end Chuck Taylors.
Product line stretching has allowed both Toyota and Converse to reach new segments and customers that have increased their sales and reputation. Product line stretching is now always effective for companies to use, but in these two cases it has proven to be successful.

By: Hussein Zayan, Section E

Thursday, March 4, 2010

Cost-based Pricing

Kotler describes cost-based pricing as "setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk."

Staples has started a new ad campaign that showcases their low prices respective to the industry. A customer is shown exclaiming that "wow! that's a low price!" at every item he sees. Then, one employee asks another employee how many products they have, and the reply is over 7000. The employee then goes and gets a cart for the customer. This implies that all of their products are low-priced, and that the customer is going to want to purchase them. They end with the line "Staples has low prices on everything you need for your office, and we mean everything." This explicitly states their low prices on everything that was implied earlier by the commercial. Staples is positioning themselves against their competitors as the "low-price" option for those who care about saving the most money.

Ian Robertson
Section E

Advertising Objectives (Informative Advertising)

Advertising objective is a specific communication task to be accomplished with a specific target audience during a specific period of time. Advertising objectives can be classified by primary purpose - whether the aim is to inform, persuade, or remind. (see Kotler, page 358)

Informative advertising is used heavily when introducing a new product category. The objective is to build primary demand. This can be used for (see Kotler, page 359):
- communicating customer value
- building a brand and company image
- telling the market about a new product
- explaining how the product works
- suggesting new uses for a product
- informing the market of a price change
- describing available services and support
- correcting false impressions

Here is an example of how Gibson tried to introduce a new product category, the Gibson robot. The item was new and in order to attract consumers, they did an informative advertising to show the potential consumers how the new guitar technology works. Gibson hopes that if people understand how amazing the robot guitar works, it will build primary demand.

Another example of informative advertising is the new Ipod shuffle. I saw this advertising and the new features of its new control on the headset made me buy this product. This video explains how the new system works (the play/pause, forward/rewind, play list and voice over system).

These two examples illustrate how informative advertising is used when introducing a new product category.

Hendy Kurniawan, section E

New -Product Pricing Strategies

In the textbook, there are two ways to pricing strategies a company can implement when introducing a new product. They are market-skimming pricing and market penetration pricing. Market-skimming pricing is defined as setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. Market-penetration is defined as setting a low price for a new product in order to attract a large number of buyers and a large market share.

Market-Skimming Pricing

In 2006 Sony released the Playstation 3 (PS3). The price for the 60gb model was an astronomical $699 and the 20gb model was $499. Many prospective buyers were turned off by these prices because they were very high for a gaming console and the alternatives (Xbox 360 and Nintendo Wii) were much cheaper. The company issued price cuts when it introduced two models, the 80gb and 40gb, and phasing out the 60gb and 20gb. The 80gb model was priced at $499 and the 40gb was priced at $399. In 2009, Sony issued another price cut and eliminated the 40gb and 80gb models, replacing it with 120gb and 250gb models. The 120gb retailed for $299 while the $250 model retailed for $349.99. Sony also used this strategy for previous consoles, the Playstation 2 retailed for $299 at launch; Sony later cut the price to $199 and finally $99 today. The PS3 currently has the smallest share among its competition. Although this is a culmination of multiple factors, the initially high price might have turned off several prospective buyers who instead purchased cheaper alternatives such as the Nintendo Wii and Microsoft Xbox 360.

Market-Penetration Pricing

Nintendo adopted a market-penetration pricing strategy for its latest console, the Wii. The Wii was priced at $249.99 at launch, much cheaper than the 360 and PS3. This pricing strategy as well as its innovations are the main contributor to its success. It currently holds the largest market share among its competitors. Nintendo issued only one price cut so far, in 2009, lowering the price of the Wii to $199.

Jose Jacinto

Section E